Brill: Beat the lobbyists

Barack Obama was supposed to be the president who finally took on lobbyists, special interests, and wealthy lenders looking out for their bottom line. Well, let’s see it.

No, I don’t mean health care, financial regulation or cap and trade. At issue here is a topic far less controversial or sweeping, yet more indicative of the infuriating dominance of special interests in Washington: student loan reform at a time when college tuition is skyrocketing even here at Yale.

President Obama proposed in his first address to Congress a simple change in the federal college loan system that would save taxpayers billions while increasing educational opportunities for the neediest students. Rather than have the federal government subsidize and promise to bail out private loaners, Obama proposed the government loan directly to students and cut out the middle man.

And so in September of last year, the House of Representatives passed the Student Aid and Fiscal Responsibility Act, which would shift government funds entirely to the Direct Loan program and save the federal government $80 billion over 10 years. Much of those savings would go toward better funding toward Pell grants, reforming the burdensome FAFSA form and boosting early-childhood education.

And after all that, the bill would still reduce the deficit by $10 billion.

You would think the deficit-hating Republicans might sign on, but in this year of GOP nihilism, only six of 178 voted yes. Rep. John Kline of Minnesota, the ranking Republican on the relevant House committee, said the bill would result in “the elimination of choice, competition, and the innovation of the private sector.”

Nonsense, says Yale’s Director of Student Financial Services, Caesar Storlazzi. In November, the University joined hundreds of others in deciding to abandon the private system in favor of the Direct Loans program. Storlazzi explained to me that the Great Recession has so badly hurt the financial sector that private lenders are disintegrating.

“Many private lenders have had to pull out of [federal loan programs], while others are no longer offering cost savings or benefit programs,” he said. “Major banks are dropping out and laying off staff so much that it’s hard to see an advantage in these private loans.”

So what effects will be felt next fall for the hundreds of undergraduates who take out loans once administered by the private sector? “Quite honestly I don’t think our change is going to affect the average student at all,” Storlazzi said. “We’ll have the same costs, convenience and services as before.” He added that because of volatility in private money markets, “ultimately, Direct Loans will be the steadiest source of funding for students.”

And so with this logic — and the broader savings and benefits for all Americans — the House bill passed easily with 253 votes. George Miller, the California Democrat who wrote the bill, said that day, “The House made a clear choice to stop funneling vital taxpayer dollars through boardrooms and start sending them directly to dorm rooms.”

Enter the Senate, where progressive legislation goes to die. There, a majority of 100 is 60, a filibuster is polite notification of intent, and industry lobbyists are able to strangle reform by buying off just a handful of senators.

Sallie Mae, the nation’s largest private student lender, spent $3.48 million dollars in federal lobbying last year, adding to the millions spent by other lenders. Those corporations also formed political actions committees which spent an additional $2.1 million in campaign contributions.

Sallie Mae and other lenders are relying on Republican obstructionism, but also a few Democrats to help their cause. The corporations are targeting senators from states that employ loan administrators, such as Indiana, Pennsylvania, Florida and New York, arguing that the Direct Loans system will replace private jobs with government ones.

This, of course, is patently false. The House bill allows the government to contract out the administration of federal loans, using a competitive process that favors five performance criteria related to customer service and benefits.

The truth, however, will not stop industry lobbyists from protecting their corporate patrons. And as the health care debate has shown, absent a forceful campaign of offense from the president, many senators are happy with the status quo so long as they can keep their jobs.

If ever there was a case of special interests versus the American people, this is it. We can choose the current system of lining the pockets of Sallie Mae executives by subsidizing and backing their unsafe loans. Or we can choose to send more low-income students to college, strengthen existing loans and reduce the deficit by $10 billion.

It’s not a difficult choice, but it’s one that requires the leadership we expect from Obama.